The benchmark Shanghai Composite index, which tracks both the yuan-denominated A shares as well as B shares priced in foreign currency, slumped 4.5% to 2,605.72, its lowest close in the past 52 weeks. The All Share index in Shenzhen tumbled even more, finishing 5.6% down at 747.34.

At Friday's closing level, the Shanghai Composite, which nearly doubled in 2007, has lost a little more than half its value so far this year. The index is also down more than 57% from its 52-week high of 6,092.06.

"You would have expected Shanghai to be getting a treatment, but markets are being left to their own," said Howard Gorges, vice chairman at South China Brokerages. "There's speculation that Beijing may try and engineer a [Olympics] rally, but next week we may see markets falling quite low, in Shanghai as well."

Friday's drop came on worries that the Chinese economy could slow down further after the Olympics. But some analysts said such concerns were overplayed.

"The economy is fine. It is slowing down a little bit, which is what the government wants to see to alleviate the overheating problem," said Khiem Do, head of Asia multi-assets at Baring Asset Management.

Shares of real-estate giant China Vanke Co. gave up 4.8% in Shenzhen trading, extending losses. The lowered its construction outlook for the second half of 2008 earlier this week.

And among steelmakers, Angang Steel Co. gave up 6% in Shenzhen, while Maanshan Iron & Steel Co. shed 5.1%.

The extent of the fall in Shanghai rubbed off on Hong Kong in afternoon trading. The Hang Seng Index (1804580), which wavered between positive and negative zones in the morning session, ended 1% lower at 21,885.21, while the Hang Seng China Enterprises Index lost 1.7% to 11,742.39.

Rest of Asia

Other Asian markets ended mixed, as banks such as Mitsubishi UFJ Financial Group and shipping stocks such as China Cosco Holdings Co. dropped on worries about the health of the U.S. economy, while some exporters gained in Tokyo on a weakened yen.

In Asian currency trading, the dollar recently bought 109.60 Japanese yen, compared with 109.31 yen earlier in the day.

In Tokyo equities action, the Nikkei 225 Average (1804610) -- down in four of the previous five sessions -- came off early lows in the afternoon as investors bought into exporters to end 0.3% higher, at 13,168.41. The broader Topix index rose 0.1% to 1,259.93 in Friday dealings.

Some other indexes also rebounded, with Australia's S&P/ASX 200 finishing 0.1% higher at 4,986.20 and South Korea's Kospi rising 0.3% to 1,568.72.

New Zealand's NZX 50 lost 0.6%, Taiwan's Taiex rose 2.6% and Singapore's Straits Times index slipped 0.7% by late afternoon.

India's Sensitive Index declined 0.3% to 15,074.04 in the afternoon, while the broader S&P/CNX Nifty dipped 0.2% to 4,516.85.

Christopher Wood, CLSA Asia-Pacific markets chief strategist, wrote in a report that "with the inflation scare [in Asia] about to disappear down the proverbial plug-hole [on weaker oil prices], the asset allocation recommended for dedicated equity investors remains to get out of commodity- and cyclical-related stocks and into interest-rate sensitive stocks."

Wood, however, said Australia was the "obvious structural underweight in Asia Pacific," as the domestic economy there "is now unwinding just as the oil-led commodity complex is showing growing evidence of cracking."

Banks mostly lower

It was a similar story for ANZ (ANZ)(ANZ)
ANZBY, -1.17%
shares of which shed 3.6% in Sydney and 2.4% in Wellington.

Other notables included shares of China Construction Bank (939), which lost 2.2% in Hong Kong, and United Overseas Bank
UOVEY, -0.29%
which gave up 1.5% in Singapore trading.

The decline came in the wake of American International Group Inc.'s $5.36 billion quarterly loss and news that Citigroup Inc. has agreed to buy back more than $7 billion of illiquid auction-rate securities to put to rest claims that it misled investors about the debt's risk.

Shares of Citigroup (8710)
C, +0.14%
which ended 6.2% lower Thursday in New York, fell 3.7% to close out the week in Tokyo.

South Korean banks reversed early declines, recovering some losses from Thursday, when they dropped after the country's central bank raised interest rates by a quarter percentage-point. Kookmin Bank
KB, -0.46%
rose 0.8% and Industrial Bank of Korea climbed 0.3%.

In other news, lending by Japanese banks rose 2% last month from July 2007, according to official data released by the Bank of Japan Friday.

After adjusting for write-offs, exchange-rate changes and other special factors, the rate of increase climbed at an annualized 2.5% rate. Lehman Brothers said the pick-up in lending was driven mainly by an increase in loans to local governments.

Regional detail

Regional shippers declined after marine freight rates dropped overnight, also tied to concerns about prospects for the U.S. economy.

In Hong Kong, shares of Lenovo Group
LNVG
(992), one of the official sponsors of the Beijing Olympics, climbed 3.2% a day after the company reported a 65% jump in quarterly profit. See full story.

Under pressure, shares of Telecom Corp. of New Zealand (TEL) tumbled 7.6% in Wellington. The company reported a 15.5% drop in net profit for the year ended June 30, and said it expects a sharp decline in earnings during fiscal 2009.

Thursday on Wall Street, the Dow Jones Industrial Average
DJIA, -0.05%
slumped 1.9% to 11,431.43, while the Nasdaq Composite
$COMPX
fell 1% to 2,355.73 and the S&P 500 index
SPX, +0.01%
gave up 1.8% to 1,266.07. In addition to worries about the financial sector, Wal-Mart Stores Inc.'s weaker-than-expected July sales added to the selling pressure.

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